Overdrawn Directors Account

denwags

Help........PAT is 42k, directors drawings are 52k, therefore, the directors loan account is overdrawn by 10k. However, retained earnings from previous years is 12k (undrawn dividends) can I offset the retained earnings to clear the outstanding overdraw on drawings? If so, how would I treat it?

peugeot

You would vote a dividend to clear the overdrawn loan account and the b/fwd accumulated reserves can be used to do this. The financial statements will show:

Reserves brought forward....................12,000
Retained profit for the year..................42,000
Dividends.........................................(52,000)
Reserves carried forward.......................2,000

However, the client should be advised that distributable reserves are only £2k and their drawings should be restricted as dividends cannot be voted in excess of distributable reserves.

Best wishes
Steve